Updated at 3:24 pm EST
U.S. stocks pared earlier gains Monday, while the dollar extended its decline on foreign exchange markets, as investors looked to build on last week’s jobs-lead rally with and eye on key inflation data expected over the coming days.
Stocks were given a late-morning boost from the New York Fed’s December inflation expectation forecasts, published Monday, which showed year-ahead CPI projections at 5%, down from 5.2% in November and the lowest since July of 2021.
Hawkish comments from Federal Reserve speakers, including San Francisco Fed President Mary Daly and Atlanta Fed President Raphael Bostic, clipped equity market momentum into the close of the session.
Daly told the Wall Street Journal that she could provide arguments “for either side” in the debate as to whether a 25 basis point or 50 basis point rate hike would be appropriate for the Fed later this month, and stressed the need to ensure inflation doesn’t become imbedded into the economy.
Friday’s better-than-expected job report, which showed a firm 223,000 gain in net new positions alongside moderating wage growth, sparked the strongest single-day gain for the S&P 500 in more than a month, with Treasury yields moving sharply lower and the dollar shedding gains against its global peers as investors re-set Fed rate hike expectations amid hopes of slowing inflation.
The first contraction for the ISM services sector survey, a crucial reading of activity in the economy’s most important growth driver, added to Friday’s gains as bets on a smaller 25 basis point rate hike from the Fed on February 1 jumped to around 80.2%, according to the CME Group’s FedWatch.
Growth worries will temper some of those gains heading into the start of the week, with investors eyeing Thursday’s December inflation report and the start of the unofficial start of the third quarter earnings season on Friday, but a weaker dollar and softer Treasury bond yields, linked to a brightening inflation forecast, as giving U.S. and global stocks an early boost.
Fed Chairman Jerome’s Powell’s speech at a central banking conference in Sweden, just two days prior to a key reading on domestic inflation, will highlight a relatively muted week of economic releases on Wall Street heading into the start of the fourth quarter earnings season.
Powell, who is slated to address the Sveriges Riksbank International Symposium on Central Bank Independence in Stockholm at 9:00 am EST Tuesday, may address last week’s ‘goldilocks’ jobs report that showed firmer-than-expected hiring in December paired with moderating wage growth.
If Powell, who has countered market expectations for easing rate hikes over the past several months, allows the current consensus to carry over into Thursday’s inflation reading, stocks have a chance to build significant gains over the two weeks between now and the Fed’s February 1 policy decision.
Thursday’s CPI reading is expected to show headline inflation falling to 6.5% in December, from 7.1% in November, with so-called core consumer price pressures — which strip out food and energy costs — easing to an annualized rate of 5.7%.
Benchmark 2-year Treasury note yields were last seen slipping to 4.204% in early New York trading, with 10-year notes falling to 3.530%, while the U.S. dollar index, which tracks the greenback against a basket of its global peers, fell 0.78% to 103.092, the lowest levels since late June.
On Wall Street, the S&P 500 was marked 7.5 points higher in the final hour of trading while the Dow Jones Industrial Average fell 77 points. The tech-focused Nasdaq was marked 108 points higher.
In overseas markets, China’s reopening of the Hong Kong border after more than three years, alongside the loosening of further Covid-era restrictions on travel and business, lifted Asia stocks firmly higher, with the region-wide MSCI ex-Japan index rising 2.43% into the close of trading.
European stocks were also higher, with the Stoxx 600 extending gains from its best week in nine months to close 0.88% higher in Frankfurt dealing, powered by last week’s softer-than-expected inflation data that has tamed some of the more hawkish expectations from the European Central Bank.
Oil prices jumped, as well, on bets that re-opening moves would ignite deeper commodities demand, while copper prices traded as the highest levels in six months.
Brent crude contracts for March delivery, the global benchmark, were last seen $1.80 higher on the session at $79.64 per barrel while WTI futures for February, which are more tightly-linked to U.S. gas prices, rose $1.13 to $7490 per barrel.